ROB STEWART. Mal and Scotty’s Excellent Company Tax Cut Adventure.

The Government’s full proposed company tax cuts package may eventually pass the Senate. If it does this will not be due to any “inevitability” or natural law of diminishing company tax revenue. And the tax cuts will not result in a win for “average hard working Australians.” Income and wealth inequality will continue to rise.

When Federal parliamentary sittings commenced this year it did not take long for hostilities to resume in question time. First up, Bill Shorten asked Prime Minister Turnbull about the need for and fairness of proposed company tax cuts for big business when the Government was increasing taxes on “ordinary Australians” for example by increasing the Medicare levy to pay for the National Disability Insurance Scheme (NDIS). Turnbull was fulsome in his response with invective, spleen venting and spittle flying about how the Labor Party ‘hates’ business, hates people having a go for themselves, hates success and only loves its corrupt, bludging, union hack buddies and cronies. While failing to answer the question Turnbull left no doubt the discourse this year will be as polarised, partisan, juvenile, vicious, hypocritical and irrational as ever. Something we can all look forward to. And company tax cuts will feature strongly.

The company tax cut issue arose again during the PMs recent trip to the United States. Turnbull heaped praise on Trump for the pure economic genius and leadership evidenced in his $US5.8 trillion reform and tax cut package, featuring a reduction in the company tax rate from 35% to 20%. Can’t really blame Malcolm for cheering – markets cheered on as well, they could smell money in the air. There is no need to confuse exuberant casino capitalism with economic reality.

Mr Turnbull might have also taken the opportunity to praise Trump on some of the existing and proposed spending cuts required to fund his visionary plan. Like Mr Trump, Mr Turnbull is a genius, and he would know that every economic decision has its opportunity costs. Perhaps Turnbull could have mentioned Trump’s already unprecedented cuts in low-income housing, job training, food assistance, legal services, healthcare, help to distressed rural communities, nutrition for new mothers and their infants, funds to keep poor families warm, even meals on wheels…. And all this before the new master plan is implemented.

Turnbull didn’t miss the opportunity to remind everyone that he too has a visionary company tax cut plan, and Australia must act immediately to cut our company tax rates. Otherwise, we will be left behind with investment flying out of the country like startled, screeching bats flying out of a cave. Apparently, if we don’t act now Australia will become an economic backwater, a third world collapsed visage of its former self. And everyone knows that it’s “common sense” tax cuts for companies “overwhelmingly” benefit good ole workers, not rich corporate executives and shareholders. So, that’s that then – QED!

The following provides a brief summary of some critical expert commentary on the company tax cut plan:

the proposed cuts will be funded not by jobs and growth but by bracket creep and spending cuts;

modelling indicates the cuts will increase employment by 0.1%, wages growth by 0.1%, GDP growth by 0.05% all in 20 years time (all paltry and surely within margins of error);

economists and tax experts indicate: doubts as to the size and timing of any wage gains; doubt about any long term positive impacts for the domestic economy, given our system of franking credits; trying to compare our tax system, particularly when focusing only on the headline company tax rate, is like trying to compare apples with oranges; the way the proposed tax cut is structured small and medium size Australian companies would actually lose out; the net impact on investment would be negative; and things other than tax cuts are just as important to the long term success and growth prospects of Australian businesses;

if the need for the company tax cuts is so urgent, why wait years before the big beneficiaries of the policy get a slice of the pie? – the first cut to businesses with annual turnovers of over $1 billion isn’t scheduled until 2022-23;

15 of the largest businesses, which stand to receive around one-third of the benefit of the tax cut, operate within oligopolies which are less inclined to invest in expanding job opportunities and market expansion and more likely to invest in maintaining barriers to entry and market power;

on measures such as average and effective tax rates and when aspects such as dividend imputation and differing allowances are taken into account, international comparisons show Australia tends to sit in the middle of the pack or at the lower end (more competitive) of company tax regimes;

more than 700 of the largest companies in Australia paid absolutely no company tax last year, around half that number haven’t paid company tax for several years, and some haven’t paid company tax for over 10 years;

increasing corporate profits [via company tax cuts] will not lead to an increase in investment or employment or wages if aggregate demand continues to remain weak; and

the proposed tax cut will essentially give a “windfall” gain to foreign investors and a corresponding “windfall” loss to domestic investors.

The above points are by no means exhaustive. International evidence any substantial proportion of company tax cuts will flow directly to workers is, at best, mixed despite Turnbull’s vehement assurances it’s obvious common sense. The specific opportunity cost of the $65 billion tax cuts are also worth consideration. However, when tax cuts are being proposed, it seems trivialities such as opportunity costs can be put aside. It’s a different matter for public spending proposals. It is then we hear there is no such thing as a free lunch, we have to live within our means, we’re facing a debt and deficit disaster, we just can’t afford it, and so on. Just review and consider the continuing parliamentary discussion concerning funding for the NDIS and you will get the picture.

On the pro side of the argument, there has also been much spoken and written. Those interested can turn to the “conventional” unbias media such as the News Corp stable, or myriad business lobby groups and sensible right-wing think tanks, to see why it so important and essential for companies to pay less tax, if they’re actually paying any company tax at all. Many arguments are put. Two arguments warranting a mention are: that we have no choice but to cut company taxes because everyone is doing it; and despite what contrary economic analysis might show it’s just plain common sense. It’s the pub test vibe thing, everyone knows company tax cuts are the best thing that could possibly happen for jobs growth and the wages of hard working average Australians.

It should be concerning that one of the key pro arguments is premised on Australia having no real economic sovereignty when it comes to matters of taxation, so much for democracy – it’s all apparently inevitable and beyond our control, a natural force, like gravity. This is quite a shock. I had always thought taxation was actually a human creation, based on and subject to the laws and regulations of the land. A bit like the way thousand page plus “free trade” agreements are created. I had no idea company tax cuts were actually an immutable law of nature.

So what side of the argument will ultimately win the day? Despite the arguments being put in favour of them, the company tax cuts are not a certainty. There is no natural law of diminishing tax revenue and Australia does have sovereignty over its taxation regime. And there is no “common sense” pub test vibe in support of the tax cuts either if anything I feel the vibe would be to the contrary. So these supporting arguments are fallacious. And such cuts would not result in a win for the “average hard working Australian.” Income and wealth inequality would continue to rise. However, such policies will continue to be put forward by whoever is in government as they are consistent with the ongoing assault on democracy that is a central element of neoliberalism – ie. corporate welfare and public squalor. Far from ending or even being seriously censured after the Great Recession, the forty years plus neoliberalism experiment is just getting started. More to come on neoliberalism.

Rob Stewart is a retired economist and former Senior Executive in the Australian Public Service, with experience primarily in the Department of Foreign Affairs and Trade (AusAID), and The Treasury and The Department of Infrastructure, Transport and Regional Development.

One Response to ROB STEWART. Mal and Scotty’s Excellent Company Tax Cut Adventure.

An excellent summary of the present situation regarding these nefarious tax cuts. I am glad “common sense” has been debunked. Common sense is whatever people say it is and should not be used as a measure of assessment of economic and/or other policies that should be rationally debated. It is, of course, beloved of politicians.

As for neoliberalism continuing to push ahead, despite the evidence that its fundamental axioms are empirically invalid, I agree completely. It is a beast that has been with us in some form or other for the past one hundred years, but now it has become more subtle–if that is possible–by aligning itself to a form of small government benefitting primarily the corporations and the “elites” who run them. Corporate welfare now trumps social welfare as $50 billion of tax cuts exemplify.

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